No subsidy for new projects importing gas, says power ministry

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Due to the increase in gas price, tariff from these plants is expected to shoot up to over Rs 6-7 per unit. Reuters Due to the increase in gas price, tariff from these plants is expected to shoot up to over Rs 6-7 per unit. Reuters
SummaryIn what may be a big setback to 16,000 MW of existing and upcoming gas-based power projects that originally...

In what may be a big setback to 16,000 MW of existing and upcoming gas-based power projects that originally were to rely on Reliance Industries' KG-D6 gas but now need to use imported RLNG, the power ministry has decided against recommending any Central subsidy for these projects.

In a draft note moved by the power ministry, it has proposed that Centre would provide subsidy of about Rs 5,700 crore for next two financial years only for 10,382 MW of existing gas-based capacity running on administered price mechanism (APM) gas. This has been proposed so that electricity tariff from these plants are maintained at Rs 5-5.50 /kWhr even after domestic gas price is doubled from present $ 4.2 per mmBtu to around $ 8.4 per mmBtu from April 2014.

Due to the increase in gas price, tariff from these plants is expected to shoot up to over Rs 6-7 per unit, making scheduling of this expensive power difficult.

The proposed policy, which needs the approval of all the key ministries such as finance and Planning Commission in the Cabinet, aims to prevent gas-based power capacity from getting idle and becoming non-performing assets. The finance ministry had earlier strongly objected to a draft Cabinet note moved by the power ministry that proposed the entire subsidy burden of about Rs 25,000 for gas-based projects on the Centre.

As per the redrafted note, all the PMT gas-based projects would get government subsidy only for 2014-15 and 2015-16 after which there is an expectation that availability of domestic gas would improve. All PMT-based gas stations would also be free to increase their plant load factor (currently at 44%) by using RLNG but they would not get any subsidy for buying the expensive fuel. The problem for 7,000 MW of power projects dependent on KG-D6 gas is more as these would not get any additional gas in 2014-15 from the quota reserved for the power sector for the next two financial years.

The entire additional gas of about 3.95 MMSCMD would be given to Ratnagiri Gas and Power (RGPPL), former Dabhol Power Plant, to prevent the plant from turning defunct and its Rs 8,000 crore of loans turning into NPAs. However, entire quota of 5.78 MMSCMD of additional gas would be given to these units in 2015-16.

For new and upcoming gas-based plants of roughly 9,000 MW, the proposal says that they can run their

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